U.K. Trade Deficit Hits £11.1 Billion in August, Higher Than Forecast

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Britain posted a larger-than-forecast trade deficit in August and construction output fell at the fastest pace since 2012, underlining the economy’s slowing momentum.

The goods trade deficit was 11.1 billion pounds ($17 billion) compared with an upwardly revised 12.2 billion pounds in July, the Office for National Statistics said in London on Friday. Economists in a Bloomberg survey had forecast a narrowing to 9.9 billion pounds. Construction output fell 4.3 percent following a 1 percent decline in July.

Cooling global growth and a strong pound are starting to take their toll on British companies, leaving Bank of England officials in no hurry to raise the benchmark interest rate from a record low.

Net trade, the biggest contributor to Britain’s expansion in the second quarter, is on course to hold back growth in the third. The deficit in goods and services was 7.7 billion pounds in July and August alone, more than double the gap in the whole of the second quarter.

With the third quarter now almost entirely reliant on a weakening services sector, EY ITEM Club said there is now a “downside risk” to its forecast for a 0.6 percent expansion. The economy grew 0.7 percent in the second.

The pound weakened after the data and was trading at $1.5346 as of 12:10 p.m. London time, little changed on the day.

Goods exports rose 3.5 percent in August from July, when overseas shipments slumped to their lowest level since 2010. Exports to non-European Union nations rose just 1 percent, with sales to China down 17 percent.

Wet August

With the surplus on services increasing in August, the total trade deficit narrowed to 3.3 billion pounds, the ONS said. Economists had forecast a gap of 2.2 billion pounds.

The drop in construction output was the largest since December 2012, with all categories falling for the first time in five years.

The ONS attributed the decline to construction workers taking more vacation in August than is usual for the time of year and wetter-than-normal weather, particularly toward the end of the month. Southeast England had the rainiest August since 1977, according to the Met Office.

An unprecedented 8 percent increase in September would be needed for construction output to be unchanged in the third quarter from the second, the ONS said.